CAS Exam 5 flashcards
CAS Exam 5 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Written vs earned premium
- Written premium is booked when the policy is issued for its full term; earned premium is recognized as coverage is provided over time. The difference is the unearned premium reserve.
- Exposure base
- A unit that measures the amount of risk insured, such as car-years, payroll per $100, or sales per $1,000. Rates are expressed per unit of this base so dissimilar risks can be compared.
- Permissible loss ratio
- The portion of premium available for losses and loss adjustment expenses after variable expenses and the profit and contingency provision are removed. It equals 1 minus the variable expense ratio minus the target profit load.
- Loss ratio method
- A ratemaking procedure that compares the actual loss ratio to the permissible loss ratio. The indicated change equals the actual loss ratio divided by the permissible loss ratio, minus one, applied to current rates.
- Pure premium method
- A ratemaking procedure that divides incurred losses and loss adjustment expenses by exposure units to get a pure premium, then divides by the permissible loss ratio to obtain the indicated average rate.
- On-level factor
- A parallelogram-based multiplier applied to historical premium so that all experience-period premium is restated at current rate levels. It equals current rate level divided by the average level during the experience period.
- Parallelogram method
- A technique that weights each historical rate change by the portion of the experience period it affected, accounting for the lag between policy inception and earning of premium, to compute the on-level factor.
- Trend factor
- A multiplier projecting frequency and severity from the average accident date of the experience period to the average accident date of the future policy period, typically using exponential or linear fits.
- Limited fluctuation credibility
- A credibility method setting Z equal to the square root of actual exposure divided by the exposure needed for full credibility, capped at one. It addresses the randomness of experience volume.
- Complement of credibility
- The alternative estimate used to fill the portion of the rate not supported by subject experience, weighted by one minus Z. It is usually the class or statewide loss cost.
- Loss development factor
- A multiplicative factor applied to losses at one maturity age to estimate losses at a later age. The product of all remaining age-to-age factors gives the age-to-ultimate factor.
- Fixed vs variable expenses
- Fixed expenses do not vary with premium and are loaded per exposure unit; variable expenses are proportional to premium and enter the permissible loss ratio. Misclassifying them distorts the indicated rate.
- Premium at current rate level
- Historical premium restated as if current rates had been in effect throughout the experience period. It is required for loss ratio indications because the numerator losses reflect current costs.
- Rate vs premium change
- A rate change applies to the price per exposure unit; premium change also reflects shifts in exposure volume and mix. Off-balance from rate changes arises from distributional shifts among classes and deductibles.
- Increased limits factor
- The ratio of expected losses at a higher policy limit to expected losses at the basic limit. It reflects the excess severity of claims that exceed the basic limit.
- Deductible credit
- A multiplicative reduction to the manual rate reflecting losses eliminated by the deductible. It depends on the loss elimination ratio computed from the severity distribution above the deductible.
- Case reserves
- Amounts set individually by claim adjusters for reported claims, reflecting their estimate of remaining unpaid amounts. They are a component of total unpaid claim liabilities alongside IBNR.
- IBNR
- Incurred but not reported reserves cover claims that have occurred but are not yet known, plus expected future development on reported claims. It is estimated statistically rather than claim by claim.
- Chain-ladder method
- A development technique that computes age-to-age factors as cumulative losses at a later age divided by cumulative losses at an earlier age, then multiplies reported losses by the product of remaining factors.
- Bornhuetter-Ferguson method
- A reserving method that adds expected unreported losses to reported losses. Expected unreported losses equal the a priori ultimate times one minus the reciprocal of the development factor, blending development with an expected loss ratio.
- Expected loss method
- A reserving approach setting ultimate losses equal to earned premium times an a priori expected loss ratio. It is used for immature years where reported data cannot support reliable development.
- Mack method
- A distribution-free technique estimating the standard error of chain-ladder reserves by combining process variance and parameter variance across development periods. It assumes development factors are independent across years.
- Paid development triangle
- Cumulative paid losses by accident year and maturity age. Paid development reflects settlement speed and is less affected by case-reserve adequacy than incurred development.
- Incurred development triangle
- Cumulative incurred losses, combining paid amounts and case reserves, by accident year and maturity age. Changes in case-reserve strength can distort its age-to-age factors.
- Tail factor
- A factor extending development beyond the oldest observed maturity age to ultimate. It is often fit with an inverse power or exponential curve and is a major source of reserve uncertainty.
- Berquist-Sherman adjustment
- A restatement of historical triangle data to reflect current case-reserve adequacy or settlement rates before applying development methods, removing distortions caused by operational changes over time.
- Case reserve adequacy
- The relationship between adjuster-set case reserves and the eventual paid amounts. Systematic inadequacy inflates incurred development factors and can understate or overstate reserves depending on direction.
- IBNER
- Incurred but not enough reported reserves capture expected development on known claims beyond current case reserves. Whether it is separated from IBNR depends on the reserving convention used.
- Claim count development
- The projection of ultimate reported claim counts using count-based age-to-age factors. It supports frequency estimates and pure premium projections independent of severity movements.
- Severity trend
- The rate of change in average claim cost over time, driven by inflation, legal environment, and claim mix. It is applied to projected severity when estimating ultimate losses.
- Reserve discounting
- Converting expected future claim payments to present value using a discount rate and expected payment pattern. Statutory reporting generally uses undiscounted reserves except where specifically permitted.
- Ultimate loss estimate
- The projected total cost of all claims from an accident year, including paid amounts, case reserves, and IBNR. It is the basis for reserve adequacy testing and rate-level indications.